Cleaning Up: Profit meets Clean Energy in IFC Deal with Tian Lun Gas

As China strives to cut its greenhouse gases and switch to cleaner fuels, gas companies such as China Tian Lun Gas Holdings Limited are seizing the opportunity to supply natural gas to cities throughout China. Tian Lun Gas and IFC both see a huge business opportunity to feed demand for greener and cheaper fuel, resulting in reduced greenhouse gas emissions and a better indoor living environment for millions of people around the country.

It’s the kind of deal that meets IFC’s criteria: a high return for investors coupled with meeting IFC’s aims of supporting climate-friendly policies and improving the lives of people in need. On September 23, month, IFC strengthened its support for Tian Lun Gas by signing a $60 million loan with the company. The loan comes on the heels of a $150 million equity investment in the company in May this year by IFC and IFC Global Infrastructure Fund, making them the second-biggest investors in the company on a combined basis.

“We’re excited about the fundamentals of this sector,” said Lance Crist, IFC Head of Natural Resources, speaking at the loan signing ceremony held in Hong Kong today. “Natural gas can cut pollution by 70 to 90 percent, and can dramatically reduce indoor air pollution – a major problem in China.”

By facilitating access to natural gas for millions of people, the project will bring significant improvement to the living conditions of people in China, as gas is expected to replace other less efficient and more harmful cooking fuels or in some cases home heating fuels such as coal, LPG, or wood.

For IFC Global Infrastructure Fund – a $1.2 billion fund managed by IFC Asset Management Company – the deal represents the fund’s first investment in Asia and also in the oil and gas sector.

“We believe our investment is good for the development of China,” said Darius Lilaoonwala, Co-Head of IFC GIF.
Driven by urbanization and against the backdrop of the government’s promotion of natural gas to replace coal and oil in a bid to stem pollution, China set a goal in its Five-Year-Plan for 2011-2015 of increasing the share of natural gas in its energy consumption from 4% in 2010 to about 8% in 2015.  To do that, the country needs more natural gas infrastructure.

Tian Lun Gas is one of China’s biggest domestic gas operators and is listed on the Hong Kong stock exchange. It will use the loan to expand and buy city gas concessions.

“We are honored to have won the trust and long-term support of IFC and IFC GIF,” said Zhang Yingcen, chairman of Tian Lun Gas. “Their equity investment together with IFC’s loan will give us ample capital to grow our existing business, develop new business, and improve our debt structure.”

To date, IFC has invested almost $1 billion in infrastructure projects in China, about two-thirds of which are in natural gas.